Getting set up for PAYE is a vital part of running a business properly. As soon as you take on staff, you must pay them on time and with accuracy.
This means ensuring they’re paying the right tax and National Insurance contributions (NICs). Even if you’re the only employee as a limited company director, you’ll still need to work this out.
So you’ll need to use HMRC’s pay-as-you-earn (PAYE) system by yourself or via a third-party payroll provider.
This article will take you through the important steps needed in order to set up PAYE correctly.
1. Register as an employer
Before anything else, you must inform HMRC that you’ve hired staff.
This means registering as an employer. Once that’s done, you’ll receive a login for PAYE Online: a service that lets you check and pay what you owe to HMRC and view your payment history, tax codes and other employee information.
There are some reasons why you might be exempt, but if not, you’ll be required to carry out payroll reporting online.
2. Choose your payroll software
Now it’s time to pick your payroll software. It will need to:
- record employees’ details
- calculate pay and deductions
- report to HMRC.
Make sure you use one from HMRCs list of recognised payroll software providers.
3. Keep records
Maintain payroll records, including what you pay your employees, what deductions you make, and reports and payments to HMRC.
You’ll need to keep these records for at least three years after the end of each tax year, and show that you’ve accurately reported them to HMRC.
4. Notify HMRC about your staff
When you hire a new employee, ensure you include their details on your first full payment submission (FPS).. This tells HMRC about payments and deductions made to your employee(s) every time they are paid.
5. Record pay, make deductions and report
Now your PAYE system has been set up, you’ll need to record the following information in your software:
- statutory payments (sick pay, parental pay)
- holiday pay
- certain expenses and benefits
- tips, bonuses or commission
Once you have your total, you’ll need to make certain deductions:
- employee’s National Insurance
- student loan repayments
- pension contributions
- payroll giving
- child maintenance
And, of course, make sure you calculate the employer’s National Insurance that you’ll pay, too.
Once this is all done, you can then produce payslips for your team and report their pay and any deductions to HMRC via the FPS form.
6. Pay tax
In the upcoming tax month, you’ll now be able to view the tax and National insurance that you owe on your FPS.
Now you’ll need to claim your reductions for things like statutory pay, employment allowance or the construction industry scheme. Your next step will be to send an employer payment summary by the 19th of the tax month after the last one reported.
Ensure you send payment to HMRC by the 22nd of the month if you report payroll online, or the 19th if you report by post.
Speak with an expert
Setting up PAYE can take time and effort, and getting it right the first time isn’t guaranteed. In our experience, clients who come to us to get their payroll running correctly are relieved to have a professional look over everything.
Once it’s set up, you can run it by yourself. But you can do so knowing that you’ve paid your staff correctly and if you need extra support, we can continue to help you through our payroll management service.
At AssureTax, we understand what it takes to set up a proper PAYE scheme. Get in touch with us to find out more about how we can help.